06 December 2021
Latest updates on sustainability reporting
Climate change and human rights in focus with new updates in the sustainability reporting frameworks ‘Task Force Climate-related Financial Disclosures (TCFD) Recommendations’ and ‘Global Reporting Initiative (GRI) Standards’ and a recent launch of a community focused investor toolkit by the Responsible Investment Association Australia (RIAA).
TCFD updates
In 2017, the TCFD released climate-related financial disclosure recommendations designed to help companies provide better information to support informed capital allocation. Over the years, TCFD has been adopted widely as a forward-looking framework to report on an organisation’s financially material climate-related issues, with financial authorities and regulators around the world issuing guidelines for enhanced disclosures in line with TCFD. Moreover, a number of jurisdictions have recently proposed mandatory TCFD-aligned disclosures including New Zealand, UK, Canada and Singapore. TCFD disclosure recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets.
On 14 October 2021, TCFD published its 2021 Status Report, indicating a significant jump in the number of companies reporting on climate-related risk. According to the report, TCFD supporters increased by 73% since 2020 (and by 410% since 2018) to over 2,600 supporters spanning across 89 countries and nearly all sectors of the economy with a combined market capitalisation of $US 25 trillion.
To clarify issues raised by organisations in their implementation of the TCFD recommendations and to provide additional supporting guidance the TCFD also published in October 2021 a new Guidance on Metrics, Targets, and Transition Plans. The guidance raises the importance of seven categories of metrics that are used for assessing financial impact, are intended to support comparability and can be applied across any industry. The categories include (1) greenhouse gas emissions, metrics on climate-related (2) transition and (3) physical risks and (4) opportunities, (5) capital deployment, (6) internal carbon price, and (7) remuneration. The guidance reinforces key characteristics of effective disclosure of climate-related targets, including the importance of interim targets, and it assists companies with disclosing information related to their plans to transition to a low-carbon economy. Lastly, it also describes types of information organisations could disclose on financial impacts of climate change as well a real-world example.
The TCFD also published its 2021 Annex Implementing the Recommendations of the TCFD (Annex) guidance which updates and supersedes the 2017 version. The Annex provides both general and sector-specific guidance on implementing the Task Force’s disclosure recommendations. Resonating with the new guidance on metrics, targets and transition plans above-mentioned, key changes have bene applied to the ‘strategy’ and ‘metrics and targets’ areas of the Annex within the general as well as sector-specific guidance including banks, insurance companies, asset owners and asset managers. The TCFD published a Summary of Changes document providing a view of the key changes for each section of the Annex.
GRI updates
In October 2021, GRI launched the revised Universal Standards to fully reflect due diligence expectations for organisations to manage their sustainability impacts, including on human rights. The revised modular structure of Universal Standards comprises three standards:
GRI 1: Foundation (to replace GRI 101: 2016): introduces the purpose and system of GRI reporting, setting the key concepts, requirements and principles that all organisations must comply with to report in accordance with the GRI Standards.
GRI 2: General Disclosures (to replace GRI 102: 2016): updated and consolidated disclosures on: reporting practices; activities and workers; governance; strategy, policies and practices; and stakeholder engagement. These give insight into the organisation’s profile and scale and help in providing a context for understanding an organisation’s impacts.
GRI 3: Material Topics (to replace GRI 103: 2016): now delivers step-by-step guidance and revised disclosures on how the organisation determines, lists and manages each of its material topics.
Reporting on GRI 3: Material topics now requires an organisation to provide a comprehensive picture of its most significant impacts on the economy, environment, and people, including impacts on their human rights as a result of the organisation’s activities or business relationships. The revised standards raise the global bar for due diligence on human rights, with a higher level of focus on integrating human rights into the reporting requirements.
Universal Standards are used by all organisations when reporting in accordance with the GRI Standards, whereas organisations use the Sector Standards according to the sectors in which they operate, and the Topic Standards according to their list of material topics.
The new GRI Standards will be mandatory from 1 January 2023 and the companies will be required to only report against topics that have been identified as being material to the business. Within the new GRI Standards, there is only one way (Core and Comprehensive reporting options will no longer be applicable) to report in accordance, which comprises reporting against the nine requirements as stipulated within the new standards.
GRI has also published a map linking the new GRI Universal Standards 2021 and the GRI Universal Standards 2016 including details on those disclosures that have been subject to substantial, minor or no changes as well as new disclosure requirements.
Investor toolkit launched by RIAA
RIAA has launched a toolkit to help investors engage with companies on indigenous peoples’ rights and cultural heritage protection. The toolkit gives guidance for investors as to what to look for across companies, including red flags in their disclosure and engagement practices on indigenous peoples’ rights, and traits of leaders vs laggards. It also suggests detailed questions investors could ask in their engagement with companies and explains the importance of fundamental concepts such as free, prior and informed consent and self-determination. The growing investor focus on indigenous people’s rights is another indication of increasing expectations from businesses on human rights due diligence.
TCFD updates
In 2017, the TCFD released climate-related financial disclosure recommendations designed to help companies provide better information to support informed capital allocation. Over the years, TCFD has been adopted widely as a forward-looking framework to report on an organisation’s financially material climate-related issues, with financial authorities and regulators around the world issuing guidelines for enhanced disclosures in line with TCFD. Moreover, a number of jurisdictions have recently proposed mandatory TCFD-aligned disclosures including New Zealand, UK, Canada and Singapore. TCFD disclosure recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets.
On 14 October 2021, TCFD published its 2021 Status Report, indicating a significant jump in the number of companies reporting on climate-related risk. According to the report, TCFD supporters increased by 73% since 2020 (and by 410% since 2018) to over 2,600 supporters spanning across 89 countries and nearly all sectors of the economy with a combined market capitalisation of $US 25 trillion.
To clarify issues raised by organisations in their implementation of the TCFD recommendations and to provide additional supporting guidance the TCFD also published in October 2021 a new Guidance on Metrics, Targets, and Transition Plans. The guidance raises the importance of seven categories of metrics that are used for assessing financial impact, are intended to support comparability and can be applied across any industry. The categories include (1) greenhouse gas emissions, metrics on climate-related (2) transition and (3) physical risks and (4) opportunities, (5) capital deployment, (6) internal carbon price, and (7) remuneration. The guidance reinforces key characteristics of effective disclosure of climate-related targets, including the importance of interim targets, and it assists companies with disclosing information related to their plans to transition to a low-carbon economy. Lastly, it also describes types of information organisations could disclose on financial impacts of climate change as well a real-world example.
The TCFD also published its 2021 Annex Implementing the Recommendations of the TCFD (Annex) guidance which updates and supersedes the 2017 version. The Annex provides both general and sector-specific guidance on implementing the Task Force’s disclosure recommendations. Resonating with the new guidance on metrics, targets and transition plans above-mentioned, key changes have bene applied to the ‘strategy’ and ‘metrics and targets’ areas of the Annex within the general as well as sector-specific guidance including banks, insurance companies, asset owners and asset managers. The TCFD published a Summary of Changes document providing a view of the key changes for each section of the Annex.
GRI updates
In October 2021, GRI launched the revised Universal Standards to fully reflect due diligence expectations for organisations to manage their sustainability impacts, including on human rights. The revised modular structure of Universal Standards comprises three standards:
GRI 1: Foundation (to replace GRI 101: 2016): introduces the purpose and system of GRI reporting, setting the key concepts, requirements and principles that all organisations must comply with to report in accordance with the GRI Standards.
GRI 2: General Disclosures (to replace GRI 102: 2016): updated and consolidated disclosures on: reporting practices; activities and workers; governance; strategy, policies and practices; and stakeholder engagement. These give insight into the organisation’s profile and scale and help in providing a context for understanding an organisation’s impacts.
GRI 3: Material Topics (to replace GRI 103: 2016): now delivers step-by-step guidance and revised disclosures on how the organisation determines, lists and manages each of its material topics.
Reporting on GRI 3: Material topics now requires an organisation to provide a comprehensive picture of its most significant impacts on the economy, environment, and people, including impacts on their human rights as a result of the organisation’s activities or business relationships. The revised standards raise the global bar for due diligence on human rights, with a higher level of focus on integrating human rights into the reporting requirements.
Universal Standards are used by all organisations when reporting in accordance with the GRI Standards, whereas organisations use the Sector Standards according to the sectors in which they operate, and the Topic Standards according to their list of material topics.
The new GRI Standards will be mandatory from 1 January 2023 and the companies will be required to only report against topics that have been identified as being material to the business. Within the new GRI Standards, there is only one way (Core and Comprehensive reporting options will no longer be applicable) to report in accordance, which comprises reporting against the nine requirements as stipulated within the new standards.
GRI has also published a map linking the new GRI Universal Standards 2021 and the GRI Universal Standards 2016 including details on those disclosures that have been subject to substantial, minor or no changes as well as new disclosure requirements.
Investor toolkit launched by RIAA
RIAA has launched a toolkit to help investors engage with companies on indigenous peoples’ rights and cultural heritage protection. The toolkit gives guidance for investors as to what to look for across companies, including red flags in their disclosure and engagement practices on indigenous peoples’ rights, and traits of leaders vs laggards. It also suggests detailed questions investors could ask in their engagement with companies and explains the importance of fundamental concepts such as free, prior and informed consent and self-determination. The growing investor focus on indigenous people’s rights is another indication of increasing expectations from businesses on human rights due diligence.